Dollar recovers from 15-month low

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NEW YORK (Reuters) -- The dollar firmed Tuesday from the 15-month low touched in the prior session as investors saw Monday's fall as too far, too fast.

Analysts said investors lacked any catalyst to sell the dollar further after its recent sharp falls, but added the trend towards dollar weakness remained in place.

Sterling was one of the biggest decliners against the dollar on the day, falling after Fitch told Reuters the UK was the major economy most at risk of losing its AAA rating.

"There is a slight pullback in risk appetite overnight," said John Doyle, foreign exchange strategist at Tempus Consulting in Washington. "Yesterday, we might have moved a little too far, too quickly."

Midway through the New York trading day, the dollar index, the dollar's performance against six major currencies, rose 0.2% at 75.18. On Monday, it fell about 1% to a low of 74.93, its weakest since August 2008 and the biggest one-day drop since late July.

The euro fell down 0.3% to $1.4948, now over a cent from its 2009 high above $1.5060.

"The single currency is struggling to hold on to the $1.50 handle, and with the softer tone in the equity and commodity markets, the euro is likely to give up ground in New York trading," Brown Brothers Harriman analysts said in a note.

A weaker-than-expected German ZEW economic sentiment index showed that investors were more gloomy than at any time in the last four months.

Expectations that U.S. interest rates will stay near zero well into next year have encouraged investors to use the dollar to fund carry trades in higher-yielding assets, particularly when equity markets rally.

The Australian dollar, a relatively high yielder, was down 0.3% at $0.9269. Earlier, it had climbed well above the $0.93 level after strong Australian business confidence data, though it stopped short of a 15-month high.

Sterling fell after Fitch Ratings said that of the four major economies with top-notch AAA status, the U.K. was the most at risk, sending the pound down sharply to shed as much as a cent and a half on the day against the dollar.

David Riley, co-head of global sovereign ratings at Fitch, said if there was another significant fiscal stimulus package in highly indebted Britain its rating would be at risk.

"The Fitch news was a reminder of the longer-term issues facing the U.K.," said Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.

The pound slipped down to the $1.66 level, well below a three-month high reached on Monday, and fell to beyond 90.00 pence per euro.

In the New York session, it had pared some of those losses, but was still down 0.4% against the dollar at $1.6684, while the euro was up 0.1% at 89.57 pence.

A host of Federal Reserve officials were watched for clues on the outlook for interest rates and the eventual withdrawal of easy monetary policy measures.

Dennis Lockhart, president of the Atlanta Fed said that the U.S. economic recovery is under way and policymakers should now focus on ensuring it is a durable one.

Janet Yellen, president of the Federal Reserve Bank of San Francisco, said on Tuesday the U.S. economic recovery still faces many hurdles, including a persistently weak labor market and strained household budgets.

Elsewhere, the yen pared earlier losses against the euro , though it remained 0.5% lower at 134.36. The dollar edged down 0.1% to 89.85 yen.

Japanese Finance Minister Hirohisa Fujii said on Tuesday he supported U.S. Treasury Secretary Timothy Geithner's strong dollar policy. Fujii was speaking to reporters after meeting with Geithner in Tokyo.